Tag Archives: History

Mark Twain: Venture Capitalist

Mark Twain is one of the greatest American authors. But not many people know he was also a venture capitalist.

A phenomenally bad one.

Twain lost the equivalent of nearly $10 million* in a single investment: the Paige Compositor. Invented by James Paige, it was one of the first typesetting machines.

The Paige Compositor

The machine was a marvel, printing faster than anything else — when it worked. But with 18,000 moving parts, the Compositor was prone to breakdowns.

Paige worked on the machine for over two decades before releasing it. Twain repeatedly doubled down on his initial $5,000 investment during this time, putting in a total of $300,000.

In 1887, Paige finally put the Compositor on the market. By that time, its main competitor, Linotype, had already been on the market for 3 years.

Linotype was cheaper, simpler, and less prone to breakdowns. It soon ran away with the printing market.

Paige died penniless and Twain went bankrupt.

What can we learn from their mistakes?

Paige’s critical error was failing to get a Minimum Viable Product (MVP) to market as soon as possible.

This would’ve let Paige begin to learn what customers want and what competitors were capable of. He might have soon realized that customers didn’t like his machine because it was too expensive and unreliable.

Then, Paige could’ve simplified it, reducing breakdowns and cost. Paige and Twain just might have wound up with a huge success!

Instead, Paige kept tinkering endlessly, divorced from the lessons of the market.

Meanwhile, Twain should’ve never put so much money into a single company!

You never invest more than you can afford to lose in startups. And you must make many small bets to give yourself enough chance of hitting an outlier success.

If Twain wanted to invest in the Compositor, he should’ve placed a small bet and waited. If the company got to market and started selling lots of machines, he could place another small bet.

Investors doubling down on winners is what we call “milestone based funding.”

Companies get a little money to start. Then, if and only if they hit certain milestones, they get more.

It’s the fundamental principle of Silicon Valley, like F = ma in physics.

Today, we systematically avoid the mistakes Twain and Paige made.

We read The Lean Startup by Eric Ries and learn to launch as soon as possible. We read Angel by Jason Calacanis and learn to make many small bets instead of one big bet.

But let’s not judge Twain and Paige too harshly. After all, they never got to read those books.

The lessons of early entrepreneurs and investors taught us what we know today.

After his bankruptcy, Twain went on a world tour telling jokes and stories on stage. He traveled as far as India and made enough to pay off his debts.

Things were looking up for Twain. And then he heard about another revolutionary invention

What lessons do you take from Twain and the Paige Compositor? Leave a comment at the bottom and let me know!

Have a great weekend everyone! 👋

More on tech:

What I Learned From an Investor Who Turned $100,000 into $100,000,000

The Lean Startup

John Doerr’s Biggest Mistake

Note: Twain invested approximately $300,000 in the Paige Compositor, which failed in 1894. That equates to about $9.7 million in today’s dollars.

Photo: Twain in Nikola Tesla’s lab

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The Power Law (Part Four): The First Venture Deal

They were the best and brightest young engineers American could produce. But they had one problem: their boss was a tyrant.

Shockley Semiconductor Laboratory founder William Shockley shouted at his talented engineers, recorded all phone calls, and even demanded they take lie detector tests. All refused.

Instead, they did something few engineers in the 1950’s had ever done: struck out on their own. But how could these men of modest means start a semiconductor company?


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Enter Arthur Rock, perhaps the first venture capitalist. Rock invested and also brought in entrepreneur Sherman Fairchild, who put in a cool $1.5 million.

The “traitorous eight” engineers were off to the races. The company called itself Fairchild Semiconductor.

This was the first modern-style venture capital deal. This fascinating history is recounted in Sebastian Mallaby’s new book, The Power Law: Venture Capital and the Making of the New Future.

Like today, the Fairchild deal involved equity investment. What’s more, the founders and employees continued to own much of the company.

That employee ownership was a critical advantage.

Its engineers interviewed customers about what they needed before building anything. This made sure the new company’s products were useful.

The engineers had a strong incentive to make sure they built products that sold well. Big sales meant their stock went up!

Fairchild prospered, making huge advances in semiconductors and racking up millions in sales. Rock’s investment proved to be a home run.

His first fund went from $3.4 million to $77 million in just 7 years. This 23-fold return would be absolutely off the charts, even today.

What’s striking about the story of Fairchild is how unlikely it was.

The culture of the 1950’s was all about big institutions, from major corporations to the army. Finance was highly conservative, more concerned with avoiding loss than reaching for enormous gains.

Without this new form of investing, the Fairchild engineers would’ve kept laboring miserably for Shockley. Or perhaps they’d have moved to some lumbering bureaucracy with little interest in their ideas.

Either way, they probably wouldn’t have been able to make the huge technical advances they did at Fairchild.

The impact of what some call “liberation capital” has only grown with time.

Just a fraction of 1% of US firms raise venture capital. But that tiny group of companies accounts for 76% of the market value of IPO’s and 89% of R&D spending in America.

The most valuable assets are increasingly intangible. They are not smoke belching factories but lines of code.

This is why the venture industry will only become more important with time. It’s the only one that’s good at financing these intangible assets.

Most other investors are conservative and want collateral young firms don’t have.

When I meet with an ambitious founder today, I sometimes wonder where they’d be without venture capital. Perhaps they’d be toiling away miserably in some large bureaucracy indifferent to their talents.

And I want to free them.

More on tech:

The Power Law (Part Three): Angels and VC’s

The Power Law (Part Two)

The Power Law (Part One)

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Photo: The “traitorous eight” at the Fairchild Semiconductor offices

The Power Law (Part Three): Angels and VC’s

In the world of venture capital, there are two species: great white shark VC’s and goldfish angel investors. They dwarf us in size and power as we wiggle about looking for an insect to eat.

So I was surprised to learn that in some of the hottest deals, angel investors actually have the advantage.


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In his superb new book The Power Law: Venture Capital and the Making of the New Future, Sebastian Mallaby recounts how the greatest tech companies found their first supporters. Time and again, the hottest companies rejected entreaties to meet from the top venture firms.

Instead, they went to angel investors to raise money quickly and easily with a minimum of oversight.

Mark Zuckerberg refused to meet with Accel early on. He even showed up at the offices of heavyweight Sequoia Capital in his pajamas!

Sequoia founder Don Valentine recognized the stunt for what it was: a provocation. Zuckerberg wanted the princes of Sand Hill Road to know he didn’t need them.

Instead, he turned to Peter Thiel and other angels for his first funding. Unlike the slow moving investment committees of venture firms, they could write a check on the spot.

But Zuckerberg was not the first great entrepreneur to shun VC’s. Google founders Larry Page and Sergey Brin had every firm in the Valley breathing down their necks.

Instead, they met angel Andy Bechtolsheim on their front porch.

After a brief pitch, Betcholsheim raced back to his Porsche and returned with a checkbook. He invested $100,000 when the company wasn’t even incorporated.

Along with angels, lesser known venture firms also back many of the greatest companies. As Mallaby notes:

“…the idea that venture capitalists get into deals on the strength of their brands can be exaggerated. A deal seen by a partner at Sequoia will also be seen by rivals at other firms: in a fragmented cottage industry, there is no lack of competition. Often, winning the deal depends on skill as much as brand: it’s about understanding the business model well enough to impress entrepreneurs; it’s about judging what valuation might be reasonable. One careful tally concluded that new or emerging venture partnerships capture around half the gains in the top deals, and there are myriad examples of famous VC’s having a chance to invest and then flubbing it.”

I was very surprised to learn that being at a top firm isn’t the advantage it may seem. No wonder Sequoia still cold messages founders!

In this competitive environment, I look for ways for us to cooperate.

VC’s can benefit if angels bring them great early stage deals. Angels benefit by being able to help their portfolio companies.

In the end, if we can work together to build the greatest companies of the future, everybody wins!

What are your experiences raising from angels and VC’s? Leave a comment at the bottom and let me know!

More on tech:

The Power Law (Part Two)

The Power Law (Part One)

Managing a Crisis the Sequoia Way

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Photo: Google founders Larry Page and Sergey Brin. “File:Google page brin.jpg” by Ehud Kenan is licensed under CC BY 2.0.

The Power Law (Part One)

“Reasonable people…routinely fail in life’s important missions by not even attempting them.”

The Power Law

Every day for the last 15 months, I’ve sat down in front of my computer and tried to find the next great tech company. Being immersed in the daily details of e-mails and deal memos made me wonder about the history of this most unusual of industries, venture capital.


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So I grabbed a copy of Sebastian Mallaby’s excellent new book The Power Law: Venture Capital and the Making of the New Future. Mallaby traces the history of venture capital from its first deal to today, and explores the principles that drive its success.

The fundamental principle of venture capital is the power law — a small percentage of winners generate almost all the returns:

“Anytime you have outliers whose success multiplies success, you leave the domain of the normal distribution for the land ruled by the power law — from a world in which things vary slightly to one of extreme contrasts. And once you cross that perilous frontier, you better begin to think differently.”

Since just a few companies drive most of the returns, the entire business becomes about finding and investing in those very few companies:

“…each year brings a handful of outliers that hit the proverbial grand slam, and the only thing that matters in venture is to own a piece of them.”

So how should investors identify those rare businesses? Arthur Rock, who was arguably the first venture capitalist, liked to ask open-ended questions like “Who do you admire?” or “What mistakes have you learned from?”

Rock looked for founders who were realistic and determined. He avoided those who were prone to wishful thinking or who tried to please instead of being honest.

Rock’s inquisitive style led him to back Fairchild Semiconductor in the 1950’s in what was the first modern-style venture capital deal.

Founder traits are important, but hard numbers also matter. Google, eBay, Facebook and YouTube all had staggering growth figures early on.

Andy Rachleff, Benchmark partner and early investor in eBay, looks at an even more sophisticated growth metric:

“‘When companies grow exponentially, they don’t suddenly stop,’ Andy Rachleff observed later, adding that it is the ‘second derivative —the changes in the rate of growth of a company’s sales — that really tell a venture investor whether to back it.’”

Once an investor finds that diamond in the rough, he needs to own a piece, even if the price is high. Mallaby notes that Google’s seed round valuation was around $10M, high for its time.

Prone as I am to analysis, I often undervalued actually meeting investors and founders. This book taught me a lot about the importance of networking to the venture industry.

Don Valentine, founder of Sequoia, went to a Silicon Valley bar every Wednesday and Friday to chat with engineers about the next big thing. In the world of startups, investors are the specialists in connecting people with each other.

The more interesting people we meet, the better we’ll be at our job!

Mallaby provides so much great information that I’ll save the rest of the book for another post soon. In the mean time, if you’re interested in startups and venture capital, I urge you to grab yourself a copy!

More on tech:

What I Learned From an Investor Who Turned $100,000 into $100,000,000

Amp It Up

Managing a Crisis the Sequoia Way

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Photo: “Don Valentine, Sequoia Capital” by jdlasica is licensed under CC BY 2.0.

AMC: An Innovator Since Vaudeville

Today, AMC Entertainment Holdings, Inc. is known as one of the hottest stocks in the market, beloved by meme traders. But the company’s origins are decidedly more humble.

AMC was founded by Edward Durwood, a vaudeville performer. After his group disbanded, he bought a theater in Kansas City.

The year was 1920. Durwood was determined to enter the nascent movie business.

The tiny company grew, and in the postwar era, AMC created the first multiplexes. It was even first to offer reclining seats with cup holders, now de rigueur at theaters everywhere.

I was fascinated to learn of this history while digging into the Wall Street Journal’s weekend feature on AMC.

What struck me most was the company’s history of innovation. And AMC continues to innovate today, despite the headwinds it faces from high rents and substantial debt.

Much like Durwood entering the movie business at its beginning, AMC is taking advantage of new trends like cryptocurrencies and the popularity of the UFC. It is the only theater to accept crypto payments or screen the sought-after fights.

I think AMC’s best chance for a strong future lies in embracing and doubling down on that history of innovation. Here are some moves for them to consider:

1) Sell non-fungible tokens (NFT’s), rather than just giving them away as promotional items.

AMC has a powerful meme trader following. That group has substantial overlap with the crypto community.

AMC could also split the proceeds with the owner of the IP (such as Disney), a win-win proposition.

2) Screen Netflix content. Many Netflix subscribers would probably like to see their favorite movies and shows on the big screen.

But aside from a few very limited releases, customers are generally out of luck. This could be a huge source of exciting new content for AMC.

Meanwhile, Netflix gets to partner with a company that has more screens than any other.

3) Offer more extensive food and even alcohol.

Many upscale theaters offer restaurant-style meals, providing a major source of new revenue. Why stop with popcorn?

Alcohol could also be a massive new revenue stream with very high margins and less equipment needed than a restaurant. Licensing will be an issue, but other theaters have done this successfully.

Here’s hoping AMC will continue to innovate for another 100 years!

P.S. My one bone to pick with the WSJ article is its contention that there is no evidence of naked short selling. Persistent, large fails to deliver fly in the face of that claim, although they have moderated recently.

More on markets:

Hedge Fund Paid Researcher to Write Misleading Reports on Seeking Alpha

Ken Griffin to Spend $300 Million to Defeat Governor

How Did High Dividend Stocks Perform In the Last Crash?

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Hoffa Murder Suspect Tony Pro’s Union Hall

On July 30, 1975, James R. Hoffa, President of the International Brotherhood of Teamsters, disappeared without a trace. In 1982, he was declared dead. No body has ever been found.

A prime suspect in that disappearance was Teamsters Local 560 President Anthony “Tony Pro” Provenzano. In fact, Hoffa was actually on the way to meet Tony Pro when he disappeared.

Anthony “Tony Pro” Provenzano

A member of the Genovese crime family, Tony Pro ruled Local 560 with an iron fist. Anyone who opposed him had a way of winding up dead.

Tony Pro’s union hall

Hoffa and Provenzano’s beef seems to date from prison. Whether Tony Pro had other reasons for wanting Hoffa dead isn’t known.

Today, I went in search of the remains of this history. Tony Pro’s Local 560 Union Hall is in Union City, NJ, a town that was once heavily Italian but is now mostly Hispanic. Though it has changed since Tony Pro’s day, its working class roots are very much intact. Nearby are Tonnelle Avenue and the Lincoln Tunnel, where many of Local 560’s members drive their trucks every day.

Looking at the door to the union hall, I imagined a small, bespectacled man leaving at the end of the day with a sheaf of papers. Who would think he had the power that he did?

Tony Pro’s habit of disappearing anyone who got in his way eventually caught up with him when he had the local’s treasurer, Anthony Castellito, murdered at his country home in the Catskills. Like Hoffa’s, his body was never found. But years later, an informant tipped the FBI to Tony Pro’s involvement, and Tony went to federal prison, where he died in 1988 of heart failure.

More on the mafia in New Jersey:

THE MAFIA’S HOBOKEN FORTRESS

BADA BING’S REAL-LIFE MOB CONNECTIONS

A NOTORIOUS MOB INFORMANT’S HOBOKEN HEADQUARTERS

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A Hidden Castle…In New Jersey?

As you round a clear blue lake, a second, smaller path winds away from the main trail. Up this path, on a peak covered with flowers, lie the remains of a vast stone edifice.

This is Van Slyke Castle in Ramapo State Forest in Oakland, NJ, just 30 miles from midtown Manhattan. I visited with a friend last week and was mesmerized by the spooky ruins and the beautiful natural setting.

Van Slyke Castle was built by a wealthy stockbroker named William Porter at the beginning of the 20th century. After his death in a car crash, his widow Ruth married attorney Warren Van Slyke, who lent his name to the manse.

After Ruth’s death, the castle fell into disrepair, and burned down in 1959:

Ruth died in 1940, leaving the castle without an owner for nine years. It was finally purchased in 1949 by a couple who subsequently resold the property two years later to Suzanne S. Christie. She abandoned it shortly after. No one knows why she left the place, though it’s suspected it could have been the result of a bitter divorce.

After years of desertion, the mansion met its fiery demise when vandals broke in and set the place ablaze.

More on the history of the castle here.

The stone ruins are expansive. Though the structure is overgrown, the pipes are still visible and behind the house is the remains of a large swimming pool.

Beautiful flowers are everywhere. Perhaps Ruth Van Slyke planted them? From the peak, you can see the New York City skyline in silhouette in the distance, a marked contrast to the woodsy surroundings.

My friend and I lied on a rock near the castle and enjoyed the sun, flowers, and beautiful lake view. As we descended, I reflected on how amazing it is that inside this beautiful woods was a grand castle we could’ve easily missed.

If you haven’t been to Ramapo State Forest, I strongly recommend it! The scenery is beautiful and the hiking is easy. Add great views and the odd chipmunk, and it’s hard to beat!

Dig into these posts for more on the outdoors in New Jersey:

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Urban Combat: Lessons from Chechnya

At its widest point, Russia spans nearly 5,000 miles from the Vistula Spit in the west to the Kuril Islands in the east. In 1994, its military numbered 1.4 million. It had a massive air force and heavily armed infantry, along with the latest technologies like guided missiles.

Chechnya is a small, impoverished region about the size of Connecticut. It has been inhabited for over 40,000 years and been a part of many empires, from Persian to Russian to Soviet.

In 1991, Chechnya declared independence from Russia. Reports of mistreatment of the Russian minority inflamed tensions with Russia, and Russia began to bomb the tiny breakaway republic on December 1st, 1994. (This same casus belli was used by Putin against Ukraine.)

For 12 years over two separate wars, this tiny country held off the Russian colossus. How did they do it? As former Navy SEAL Commander Jocko Willink details in his excellent podcast, superior leadership and infantry tactics outweighed Russia’s seeming advantages.

Russian soldiers encountered unexpectedly heavy resistance as the fighting moved to Grozny, the capital. The Russian soldiers had major air power behind them, while the Chechen air force had been quickly destroyed at the beginning of the war.

But the Chechens neutralized Russia’s key advantage with a simple tactic: move closer. The air force couldn’t bomb the Chechens without bombing their own comrades as well. They bombed away anyhow, and many Russian soldiers died of friendly fire.

Their air superiority neutralized, the Russian military’s shortcomings in more basic areas became evident. They didn’t have ladders to get into buildings, an essential urban combat tool. Their leaders micromanaged and worked at cross purposes.

Chechens terrorized the Russians whenever they could. They put the heads of Russian soldiers on pikes for the survivors to see. Booby traps were everywhere (an echo of America’s experience in Vietnam and Iraq). Many Russian soldiers began to suffer mentally, and either became unable to fight or indiscriminate in their aggression, attacking civilians and driving the population to the insurgents.

Maybe it all started when the Russian soldiers stopped shaving. This was the first breakdown in discipline. It was small, but noticeable. Later, soldiers stopped following rules about boiling drinking water, leading to massive outbreaks of illness.

Eventually, Russian food supplies fell short. These tired soldiers, many of them teenagers, faced illness and hunger. The attacks from the Chechen rebels, many seasoned veterans of the USSR’s war against Afghanistan, were relentless.

Facing a grim situation in Chechnya and declining support for the war at home, Russia declared a ceasefire in 1996 and soon signed a peace treaty. Chechnya would ultimately fall after a second, and much longer, war. But this band of ill equipped rebels held off Russia for years, an incredible feat.

What did the Russian military learn from this, and what are the lessons for us? Here are a few key points:

  • Don’t count on airpower. Determined infantry wins wars.
  • Maintain discipline, even in small things.
  • Urban warfare is manpower intensive with high attrition. Be sure to have fresh troops available and an extensive mental health staff to deal with the psychological stresses of urban combat.
  • Get the civilian population on your side. Don’t hurt them. Respect their leaders and give your orders through them.

This is a fascinating history lesson that can inform US policy and even our daily lives. Where are we letting our own discipline slip?

Dig into these posts for more on history and the military:

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Photo: “Chechnya/Чече́нская” by LOreBoNoSi is licensed under CC BY-NC-SA 2.0

The Tiny Village That Beat the Great Depression

Nestled in the Austrian Alps is the tiny village of Worgl. In 1932, as the world economy was in the depths of the Great Depression, Worgl too had fallen on hard times:

The Great Depression was in full swing and of its population of nearly 5000, a third were jobless, and about 200 families were bankrupt. The situation was desperate. The town would try anything.

What followed was one of the most radical economic experiments in history. The town created a new form of money. It was a lot like the standard Austrian schilling it replaced, except its value dropped by 1% every month. In a year, you’d have just 88.64 left of every 100 schillings.

This gave residents a strong incentive to stop hoarding currency, a natural reaction to a scary economic climate:

The speed that money changed hands (14 times higher than the national schilling) helped keep local businesses afloat and, in time, brought back the town’s lost jobs.

Soon, the town went from 1/3 jobless to full employment. Tax revenues boomed as people paid their bills in the new currency before it lost its value.

Worgl’s success attracted attention from its neighbors:

Things looked up for Worgl and [Mayor] Unterguggenberger. The town did so well that six neighbouring villages successfully copied the system and over 200 grew an interest in following suit.

Ultimately, the central bank shut down this experiment in a local currency. Shortly thereafter, unemployment shot right back up to where it was before Worgl’s mayor made this bold move to save his town.

It makes sense that Worgl would’ve rocketed ahead of nearby villages. Worgl essentially had (very) negative interest rates and a far more accomodative monetary policy than its neighbors.

Today too, lowering interest rates, even below zero, is a commonly used tactic to stimulate economic activity. The US Federal Reserve lowered interest rates substantially at the beginning of the COVID crisis, and Japan and much of Europe has had negative rates for years.

But despite the success of Worgl, the results of negative rates today are mixed. Negative rates might encourage consumers to spend, but they could also discourage banks from lending. After all, who wants to lend when you might have to pay for the privilege!

Worgl remains an interesting footnote to monetary policy. Whatever the applications to today may be, I applaud the bravery of those villagers who took a radical step to try to save their home.

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Photo: “File:Pfarrkirche Woergl Osten.jpg” by Thom16 is licensed under CC BY-SA 3.0

When the Suez Canal Was Blocked for Eight Years

As the Suez Canal, chokepoint for 15% of world shipping, was cleared today, I thought of another time it was blocked. Not for a week, but for 8 years.

Following the Six Day War in 1967 between Egypt and Israel, Egypt blocked the canal to prevent Israel from using it. They placed old ships, debris, and even explosives in the canal. And it stayed that way, for eight years.

Thousands of workers rotated on and off the ships over the years to protect these valuable pieces of equipment. They organized joint social events and even created their own postage stamps, which have since become hot items for collectors.

The closure also had a serious effect on world trade, especially for countries that relied heavily on the canal. Seventy-nine country pairs saw the effective distance between them increase by 50% or more:

For these pairs, the closure caused an average fall in trade of over 20% with a three to four year adjustment period. Trade between these pairs recovered completely after the canal reopened eight years later with a similar adjustment period.

By the time the canal reopened, most of the ships in the Yellow Fleet could no longer make the trip:

The canal had remained closed so long that most of the Yellow Fleet ships had decayed and needed to be towed. But two of them—the German ships Münsterland and Nordwind—made it out on their own steam.

We had the benefit of peace this time, so the canal could be unblocked quickly. These episodes really emphasized to me the importance of peace and the free flow of goods to our prosperity.

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Photo: “File:Israeli Tanks Cross the Suez Canal – Flickr – Israel Defense Forces.jpg” by Israel Defense Forces is licensed under CC BY-SA 2.0